While the U.S. wallows in debt (and suffers the political recriminations that come with it), another country has an astonishing surplus of capital. By the end of 2010, according to an article in the Economist magazine, The Central Bank of the People’s Republic of China had $2.85 trillion in foreign exchange reserves. That figure reached $3 trillion by the end of March, 2011. However, it should be noted that China has significant external debt so the net foreign reserves is a lower number.
Interestingly, China’s central bankers are mostly invested in US government securities, but maybe they will become more adventurous if they wanted to seek higher returns on their largesse. The sheer magnitude of China’s reserve is stunning, but let’s not forget that China has four-times the US’ population with only about 40% as much GDP. There’s a lot of work for growth, but is China creative enough? After all, with $3 trillion sitting in their pockets, they are invested in the “safest” (i.e. most boring) investments – US Treasuries.
The Economist article does a little speculation and window-shopping on China’s behalf. Some of the things that China could buy with $3 trillion:
- All the outstanding sovereign debt of Spain, Ireland, Portugal and Greece for $1.5 trillion
- Apple, Microsoft, IBM and Google for less than $1 trillion
- The 50 most valuable sport franchises around the world for only $50.4 billion
- All of Manhattan real estate and Washington DC properties for $519 billion
What do you think China should do with the surplus?